The Big Energy Subsidy Imbalance that Threatens Renewables

Pressure is mounting on the Government ahead of their proposed changes to subsidies for the renewable industry with some heavy hitters voicing their concerns and businesses starting to reconsider their investments in the industry. Slashing support such as the Feed in Tariff is widely seen as a negative move and many are concerned that the Tories are hell bent on stalling the renewables sector, something that will seriously affect our ability as a nation to meet those all-important carbon targets.

How we Currently Subsidise the Renewables Industry

Subsidies for the renewables industry are not funded through direct taxation. They are paid by us, the consumer, through higher electricity bills. The Tories are worried that the support needed to further grow the industry over the coming years will add something in the region of £170 to each of our bills in the lead up to 2020.

The reason? There has been a higher than expected take up of technologies such as roof top solar panels and this success has, according to the Tories, seen subsidies spiralling out of control. In other words, renewables are more popular than everyone thought they would be and, if we are going to continue with them, we are going to have to pay more through our utility bills.

There is much play in the Government about making hard spending decisions that will reduce the deficit, something that we have all been listening to over the last 5 to 6 years whilst they have been in power. This year alone, the DECC has to find savings of around £70 million within the department. That’s on top of previous reductions under the coalition government.

The problem is that reducing the deficit also relies on us doing good businesses and growing industries such as renewables which provide valuable jobs and boost tax revenue. Cutting them off at the root too early could well see a decline in investment which could then also impact on all the work that has been done so far to reduce the budget deficit.

We may well all want to see a cleaner and more productive energy structure in the UK but the Government are saying we don’t want it at any cost. According to a DECC source in July, before news of the proposed cuts to FiT were announced:

“The public is in favour of action to cut carbon, but not at any cost and the bottom line is that subsidies should help industries get off the ground, not be relied on indefinitely. We’ll continue to meet our environmental commitments and power our economy with clean energy, but in a way that keeps costs under control and doesn’t leave consumers paying over the odds for green projects.”

The Future of Renewables

Let’s be clear: The industry itself is not against eventually reducing subsidies but the speed with which it is being done is potentially damaging and could have a massive impact for many years to come. Yes, we may have to pay more on our utility bills over the next few years with the current way of funding, but we will incur huge price in the next couple of decades if we don’t give renewables a firm enough foundation.

The other question that needs to be answered is why the Government is still providing large subsidies to both the fracking and fossil fuel industries. This is not just a UK problem – the IMF recently came out to say that fossil fuels are being subsidised to the tune of an eye watering $1.9 trillion a year globally. When the Government says that subsidies ‘should not be relied on indefinitely’ it raises the question as to why the fossil fuel industry gets them at all.

Surely the issue is that we should be reducing subsidies to less carbon friendly industries rather than to the renewable sector. The tax breaks and subsidies that the fossil fuel industry enjoy are backed up by the Government view that they also create investment in the UK and produce valuable jobs that boost the economy. The very thing that they do for the renewables industry.

Unfortunately, whilst the subsidy levels for the fossil fuel industry seem incompatible with our green agenda, the simple fact is that it pays a good deal of tax to the country’s coffers. As the Guardian recently reported:

“There is tangible public hunger to tax big corporations, and oil and gas companies do pay a lot of tax: their corporation tax made up nearly a 10th (£4.7bn) of the national total last year. As demands for public spending escalate, the Treasury cannot afford to choke off such an important source.”

If we want to create a renewables industry that works then we need to nurture it as much as possible. The future benefits are huge – energy independence and security, lower bills and a much cleaner environment. The Tories make much of leaving a better legacy to our children. The shame is that they seem to have forgotten this when it comes to green energy.